A sector inquiry into the gas and electricity markets confirms the existence of distorted competition preventing companies and consumers from taking full advantage of liberalisation.

ACT

Communication from the Commission of 10 January 2007 entitled "Inquiry pursuant to Article 17 of Regulation (EC) No 1/2003 into the European gas and electricity sectors (final report)" [COM(2006) 851 - Not published in the Official Journal].

SUMMARY

An effective internal energy market ensures security of supply at competitive prices and is a key factor in economic growth and consumer welfare within the European Union (EU). To fulfil this objective, the EU decided to fully open up European gas and electricity markets.

An inquiry pursuant to Community rules on the agreements and abuses of dominant position (Article 17 of Regulation (EC) No 1/2003) has revealed that there is still distorted competition on these markets preventing companies and consumers from taking full advantage of liberalisation. The inquiry identified the obstacles hindering creation of the internal gas and electricity market and will therefore help to eliminate them.

High market concentration

Wholesale markets are only experiencing slow growth and the degree of concentration has stayed the same as it was prior to liberalisation. The traditional operators remain dominant with widespread control of electricity generation as well as of gas imports and production. Their market power is consolidated, therefore leaving them free to increase prices.

Improved access for new entrants and development of market liquidity are the keys to dampening market concentration. The competent authorities must, amongst other things, put in place corrective measures, such as energy release programmes.

Vertical foreclosure

The vertical integration of production, systems and distribution leads to a conflict of interests, and decisions therefore tend to be in the interests of the associated companies and not in the general interest of network users.

Vertical foreclosure is reflected by a lack of transparency and discrimination in access to the market, with new entrants unable to obtain fair access to essential information. It is also characterised by underinvestment in infrastructures and a lack of available network capacity. As a consequence, new suppliers find their access to the market hindered and cannot reach the end-user, thus limiting consumers' choice.

Absence of market integration

Cross-border competition remains derisory. Barriers to cross-border supply of gas and electricity (lack of cross-border capacity, long-term capacity reservations, lack of investment in additional capacity, lack of regulation for cross-border issues) stand in the way of development of an integrated energy market.

Application of Community competition law and consolidation of regulations

While strict application of Community competition law is not enough in itself to solve the problems in the gas and electricity markets, it nonetheless plays a decisive role in strengthening competition. The Commission therefore makes full use of the powers vested in it by the Treaty's antitrust, merger-control and State Aid rules.

The regulatory framework must also be consolidated, on the basis of proposals submitted by the Commission in its communication entitled "Prospects for the internal gas and electricity market", published in parallel with the sector inquiry.

Background

Complaints about the barriers to market entry or even about consumer difficulties in choosing their supplier led the Commission to open an inquiry into the operation of the gas and electricity markets. The initial results were the subject of public consultation, enabling contributions from companies in the energy sector and traditional operators, and also from new entrants, national regulators, competition authorities, network operators and consumers. The Commission presents the final report of the sector inquiry.

RELATED ACTS

Communication from the Commission to the European Council and the European Parliament of 10 January 2007 entitled " An energy policy for Europe" [COM(2007) 1 final - Not published in the Official Journal].